UID AND PDS System

Objectives of Public Distribution System (PDS)

India’s Public Distribution System (PDS) with a network of 4.78 Lakh Fair Price Shops (FPS) is
perhaps the largest retail system of its type in the world. Since 1951 public distribution of
food grains has been retained as deliberate social policy by India with the objectives of:

(i) Providing food grains and other essential items to vulnerable sections of the society
at reasonable (subsidized) prices
(ii) To put an indirect check on the open market prices of various items and
(iii) To attempt socialization in the matter of distribution of essential commodities

PDS is an important constituent of the strategy for poverty eradication and is intended to
serve as a safety net for the poor whose number is more than 33 Crores and are nutritionally
at risk. PDS is operated under the joint responsibility of the Central and the State
Governments. The Central Government has taken the responsibility for procurement,
storage, transportation and bulk allocation of food grains, etc.

The operational details of the PDS differ from state to state. Though the policy of setting up
of FPSs owes its initiation to national food policy, its implementation remains the direct
responsibility of the state governments. In order to operate the PDS effectively, the Central
Government issues guidelines from time to time to the states regarding the operational
details of the PDS. The operational responsibilities including allocation within the State,
identification of families below poverty line, issue of ration cards, supervision and
monitoring the functioning of FPSs rest with the State Governments. The Food and Civil
Supplies Department of the State Government is mainly entrusted with the task of
monitoring PDS in the state.
Food Subsidy
Food Subsidy is provided in the budget of the Department of Food and Public Distribution to
meet the difference between the economic cost of food grains and their sales realization at
Central Issue Prices for TPDS (Targeted PDS) and other welfare schemes. In addition, the
Central Government also procures food grains for meeting the requirements of buffer stock.
Hence, part of the food subsidy also goes towards meeting the carrying cost of buffer stock.
The subsidy is provided to FCI under TPDS and other welfare schemes and for maintaining
the buffer stock of food grains as measure of food security.

The quantum of food subsidy depends on the level of procurement of food grains and
offtake under TPDS and other welfare schemes. The budgetary estimate for food subsidy
during 2008-09 was about Rs. 37,000 Crores.

PDS System Today

The TPDS system today supports over 40 Crore Indians below the poverty line with monthly
supply of subsidized food grains. The system also provides gainful employment for 4.78 Lakh
Fair Price Shops Owners, their employees and hired labour who work at the FCI and state
warehousing godowns.

PDS also has become a cornerstone of government development policy and is tied to
implementation of most rural development programs. PDS is also a key driver of public
sentiment and is an important and very visible metric of government performance.

One of the main problems with this system is the inefficiency in the targeting of beneficiaries
and the resulting leakage of subsidies. Several opportunities to manipulate the system exist
with widespread collusion across the supply chain. The Planning Commission had the
following to say on the PDS system in its 2005 report.

“For every Rs 4 spent on the PDS, only Rs 1 reaches the poor”

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“57% of the PDS food grain does not reach the intended people ”

The Challenges
There are many systemic challenges that plague the PDS system today and the key ones are
described below:

1. PDS Leakages - The TPDS currently suffers from a number of issues that make it
difficult for it to meet its objective of ensuring that the allotted quota of specified
food articles reaches the intended underprivileged/needy segments of society:
 A large number of families living below the poverty line have not been enrolled
and therefore do not have access to ration cards
 A number of bogus ration cards which do not correspond to real families, exist in
the BPL & AAY categories. Food drawn on the basis of these bogus cards is a
significant leakage from the system, as it does not reach the intended
beneficiaries. Additionally, these extra cards inflate the number of BPL and AAY
cards in circulation and further reduce the amount of food available to every
rightful beneficiary family.
 A number of instances where benefits are being availed in the names of rightfully
entitled families without their knowledge. This shadow ownership is possible due
to inefficiencies in ration card issuance and distribution
 Errors in categorization of families that lead to BPL families getting APL cards
and vice versa.
 A significant portion of benefits provided to the APL category under the TPDS,
are not availed by the intended beneficiaries and are instead diverted out of the
system.

In summary, targeting is not serving its real purpose, as the beneficiaries do not
get food grains in accordance with their entitlements.

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 2. Scale and Quality of Issue – The scale of issue and the quality of food grains delivered
to the beneficiary is rarely in conformity with the policy. Many FPS are open only for
a few days in a month and beneficiaries who do not visit the FPS on these days are
denied their right. The FPS also use multiple excuses to both charge higher rates and
deliver reduced quantity of food grains.

There are also significant differences in the manner in which the Centre and States
arrive at the number of BPL families. This mismatch usually means lower allotments
for each family as states arrive at higher numbers of BPL families.As this problem
may not go away even after reduction of duplicates, a standard way of doing this
must be arrived at for each state to resolve this issue.

3. System Transparency and Accountability –The most serious flaw plaguing the system
at present is the lack of transparency and accountability in its functioning.The
system lacks transparency and accountability at all levels making monitoring the
system extremely difficult.

4. Grievance Redressal Mechanisms – There are numerous entities like Vigilance

Committee, Anti-Hoarding Cells constituted to ensure smooth functioning of the PDS
system. Their impact is virtually non-existent on the ground and as a result,
malpractices abound to the great discomfiture of the common man.

Apart from the challenges described, transportation of food grains and appointment of
dealers of Fair Price Shops have also become difficult issues. Viability of the FPS is already a
major concern and this would get amplified once PDS leakages are brought under control.

The Proposed Food Security Act

The President’s Address contains the following announcement regarding food security:

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 “My Government proposes to enact a new law – the National Food Security Act – that
will provide a statutory basis for a framework which assures food security for all. Every
family below the poverty line in rural as well as urban areas will be entitled, by law, to 25
kilograms of rice or wheat per month at Rs.3 per kilogram. This legislation will also be
used to bring about broader systemic reform in the public distribution system.”

Creation of a framework that assures food security for all and a broader systemic reform are
the two operational components of the act apart from the commitment to provide 25 kg of
rice or wheat at Rs.3 per kg to the BPL population.

The numerical size of the target BPL population will be determined by the Centre and
identification of the individual poor households who will be entitled to BPL benefits in each
state will have to be done by each State.

As per the draft act, the Centre will offer to each State its BPL entitlement of grain at the
economic cost, with a separate subsidy covering the differences between the economic cost
and the issue price. The State should have the option to either take the grain at economic
cost from the Centre or to manage its own procurement from within the State, or anywhere
else in the country, including from imports if they are economical. The Centre will transfer
the subsidy entitlement irrespective of whether the State Government takes grain from the
Centre or makes its own arrangements to procure grain.

The State Government can provide the grain through PDS at the notified subsidized price or
provide cash transfers of the subsidy amount to designated BPL households. It has also
been recommended that when a cash transfer is made, it should be to a bank account in the
name of the oldest women member of the household.

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The systemic changes proposed provide the capability to implement far-reaching reforms.
Systemic efficiency improving changes that can be explored include:
 Roaming Ration Cards providing an opportunity to short-term migrants to move their
ration cards to their new area or work.
 Direct Cash Transfer Program where the subsidy will be transferred into the bank
account of the beneficiary.
 Choice of Fair Price Shops should improve quality of service and this solution allows
the incorporation of either limited or full choice of FPS.
 Food Stamps can be introduced allowing competition from existing food shops and
increasing the reach of the TPDS network

Proposed IT based solution approach

A significant part of the challenges in the PDS system emanates from Bogus (ration cards
belonging to fictitious families) and Shadow (genuine ration cards used by someone else)
ration cards in the system. If the bogus cards can be substantially weeded out and a
mechanism put in place to positively confirm and track the individual beneficiary offtake on
a monthly basis, the problems relating to PDS leakages, Transparency and Transportation
would get resolved, as leakage would become more difficult to hide.

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Earlier attempts at addressing the challenges have focused on identifying the “Physical
Theft” and used tools like additional Human monitoring, Global Positioning Systems (GPS)
on trucks to track the movement of trucks and Electronic Weigh bridges. All these tools are
easily by-passable and even if they work efficiently, cannot address the PDS leakages that
predominantly stem from the bogus and shadow ration cards in the system.

A solution that improves the quality of the beneficiary database and can track Individual
Beneficiary offtake coupled with a computerized MIS system can effectively improve the
PDS system. By leveraging some of the large e-governance initiatives that are being rolled
out, the solution can be implemented swiftly and cost effectively.

The Solution Components

The draft food security act implicitly requires a computerization of various elements of the
PDS system. The key components of the proposed solution and how they can be
implemented in a rapid and cost effective manner is briefly described in this section.

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Creation of a Beneficiary Database
The state government should create a high quality beneficiary database, preferably
commencing from a house-to-house survey. The State government can carry out the
enrollment of identified family members by enrolling them into the UID (Unique ID)
program.

After digitization of requisite information, enrollment of the individuals is carried out as per
the UID requirements. The digitized database will contain ten finger biometrics and
photographs1 of all family members. This enrolled data would be sent to the UIDAI (Unique
Identity Authority of India) for de-duplication and issual of a UID, which will be printed on
the ration card for each member of the family.

Appropriate action can be taken against families that have a resident who has appeared in
another ration card. Reasons for family members do are not enrolled has to be determined
followed by appropriate action. The inclusion of all families in the beneficiary database is
important for an effective elimination of Shadow and Bogus cards. A strategy to issue APL
cards by linking it to other forms of benefits including LPG needs to be adopted to make the
beneficiary database comprehensive.

To support enrollment into the UID database, the central government will mandate that the
UID numbers of each family member should be recorded in the ration card and the database
should be made available.

Individual Beneficiary Tracking

Eligible beneficiaries do not avail of their entire allotment due to various reasons that
include unavailability of funds, usage of food grains grown by them and temporary
migration, but most FPS owners tend to report a complete offtake. A mechanism is required
to be put in place to accurately track the real offtake by beneficiaries.

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The number and type of biometrics will be finalized in due course

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The ideal option is the deployment of a Point of Sale (PoS) system that is equipped with a
fingerprint reader to positively identify a beneficiary before an issue is made. The PoS
system can generate a receipt and automate the bookkeeping reducing the time required
for a transaction. The data on eligible beneficiaries for the next month is transferred to the
PoS each month with the offtake information for the previous month is collected.

Apart from ensuring accurate beneficiary offtake recording, these systems present an
effective way of communicating the entitlement to the beneficiary that remains a critical
problem despite various efforts by the Governments and other agencies. It also allows for
considerable flexibility in the choice of FPS for the consumer (with sufficient prior notice)
and therefore introduces an element of competition between different FPS and gives the
consumer the power to move to another FPS if not satisfied with the level of service.

Information, Communication Technology Infrastructure

Information Communication Technology (ICT) infrastructure will need to be deployed to
connect all the key offices of the Food Department including the Secretariat, Commissioner
cell, District Offices, Teshil/Block offices and Whole Sale Points. The infrastructure should
include a central department data center to host the beneficiary database and all other
crucial MIS functionality needed by the Department. The central data center could be
collocated with the State Data Center (SDC) being setup under the NEGAP plan and the
State Wide Area Network (SWAN), also a component of the NEGAP can be leveraged to
establish connectivity between the department offices.

Software should include a ration card management system, an individual beneficiary offtake
analysis system, an automated allotment system and a full-featured MIS system that will
cater to all needs of the Department. Appropriate mechanism to extend the
computerization to the field force of the Department should be explored. This could include
the use of handheld devices or the PoS for managing inspections and other data collection
activity.

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The Ministry of IT is setting up 100,000 Common Service Centers (CSCs) under the National
E-Governance Action Plan and it is recommended that these centers be used as citizen
service points for the food departments. The centers can subsequently function as citizen
touch points for Grievance submission and redressal as also for services such as issue of
duplicate ration cards and changes to ration cards.

Implementation Mechanism
The PDS Control order stipulates that as part of the monitoring “State Governments shall
ensure monitoring of the functioning of the Public Distribution System at the fair price shop
level through the computer network of the NIC installed in the District NIC centers. For this
purpose computerized codes shall be issued to each FPS in the district.”

The program can be implemented by the State Governments with minimal changes to the
clause in the PDS control order referred above.

PDS & UID - A Synergic Partnership

The UID program will create a database of all unique residents in the country. The PDS
system currently serves the largest number of residents in India and efforts are underway to
improve the efficiency of the system. There are several benefits that will accrue to the PDS
system and the UID program if an alignment and synergy as described above can be
established.

Benefits to UIDAI
There are several benefits to the UID program if this is adopted by the PDS system. The key
ones are explained below:

 Improved Coverage - The ration card is today the most prevalent form of identity in the
rural areas. If the UID enrollment is integrated into the process of the creation of a
beneficiary database for PDS, the coverage of UID improves significantly.

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 Data Updating – Ration cards are a persistent source of citizen transactions with a
monthly frequency. If there is a change in the family structure, or the family moves, the
ration card is sure to be updated. At this time the data can also be updated to the UID
database.

Benefits to PDS System

The PDS system stands to benefit from the legislative, technology and administrative
infrastructure that are being created for the implementation of the UID program. The key
ones are explained below:

 Better Identification – Integration with the UID program will lead to better identification
of individuals and families leading to better targeting and increased transparency and
therefore better functioning of the system and increased public approval.

 Offtake Authentication – The UID database will maintain details of the beneficiary that
can be updated from multiple sources. The PDS system can use this database for
authentication of beneficiaries during the offtake recording process. A mechanism of
verifying the ID of the person at the time of delivery of grains will help in improving the
targeting of the grains.

 Legislative Support - The legislative support in form of the need for submitting the UID
number for several transactions will push residents to acquire a UID. The most
convenience mechanism will be for residents to get a ration card and this will create a
supporting environment for computerization of ration cards.

 Technology Support – The UID program is putting together technology specifications

and infrastructure to handle enrollment, storage and identity confirmation of all Indian
residents. The PDS system can leverage this and rapidly move ahead with the enrollment
process.

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 Duplicate and Ghost Detection – The UIDAI will provide duplicate detection
infrastructure to the PDS program. It can also assist in the development of special tools
to assist in the assessment of eligibility of applicants.

 Domestic LPG Linkage – The issue of domestic LPG by Oil companies can be made
conditional to the production of an APL (non-kerosene) ration cards making enrollment a
compulsory affair.

 Support for PDS reform – The UID will become an important identifier in banking
services and day-to-day needs of the resident. This can support the PDS reform by as an
example providing the banking account number for a family to effect direct cash
transfer.

Summary
The UID program has the specific objective of creating a unique database of residents in
India and will put together the best technologies and processes for this purpose. UID can
share the burden of PDS reform by assisting in the positive identification of unique
individuals and families. This can lead to a high-quality beneficiary database without
duplicate and ghost cards, improving the targeting of benefits.

The initiatives by UID in the services space will create an ecosystem for easy implementation
of PDS reforms like direct benefits transfer. The UID database can also be used by the PDS
system for confirmation of offtake by the resident.

The large beneficiaries in the PDS system and the regular contact with them will provide the
necessary impetus for penetration of UID across the country. The efficiency improvements
in the PDS system will make it one of the best-run pro-poor schemes in the country.
Together, it is a win-win for residents and the Government.

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